Currency Note

BoE forecasts modest but positive economic growth

By Sharyh Murray-Francis May 18th, 2023

Sterling enters the day strong against a couple of its rival currencies. The pound is up on a weekly footing against the Australian dollar and Japanese yen by over half a per cent, and over one and a half per cent, respectively. Against the euro, sterling maintains most of its gains from last Thursday.

It’s a different story for the pound against the US dollar, which has lost nearly one per cent since this time last week.

The rest of the week is pretty quiet on the data front for the UK, however there are several interesting economic releases to watch out for between now and the end of tomorrow.

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Yesterday, the Bank of England’s governor, Andrew Bailey, announced that the UK economy is predicted to make “modest but positive growth”. Read on for Bailey’s comments.

In the eurozone, markets will hear a speech from the president of the European Central Bank, Christine Lagarde, at 10am. Many will be listening for any hawkish comments which could potentially boost the euro.

Elsewhere in the eurozone, the Swiss 10-year government bond yields fell to an 8-month low yesterday, below the 1% level it hit in May – hovering close to levels not seen since September 2022.

Germany’s economic sentiment fell to its lowest level in five months earlier this week however, the picture was slightly more optimistic in European equity markets yesterday. German stocks finished on a positive note, with the German DAX rising by 0.3%. This was boosted by a 2% gain in Siemens’ shares following the group’s better-than-expected Q2 sales.

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GBP: BoE’s Andrew Bailey signals optimism

The Bank of England’s (BoE) governor, Andrew Bailey, spoke more optimistically about the UK’s economic outlook yesterday, at the British Chambers of Commerce Global Annual Conference, in London. Bailey mentioned that after expecting a shallow, long recession in November, the BoE is now forecasting “modest but positive growth”.

He added that the BoE is forecasting “a much smaller increase in unemployment.”  It is worth noting however, that inflation has come in higher than expected so the BoE will work diligently to bring the rate back to its target.

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EUR: Up next, Germany’s PPI

We’ve seen lots of interesting data from Germany this week, and tomorrow this concludes with the country’s monthly producer price inflation (PPI). In March, monthly PPI in Germany decreased to -2.60 per cent, from -0.30 per cent in February. Economists will see the latest figures at 7am on Friday.

USD: Markets await initial jobless claims

US markets are expecting the number of Americans filing for unemployment benefits to rise again – but this time from 264,000 to 270,000 in this afternoon’s data release. This comes after initial jobless claims figures rose to their highest levels since October 2021 in the previous release.

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